Precision Optics (US:POCI)2025-09-29 22:02Financial Data and Key Metrics Changes - The company reported a record quarterly revenue of $6.2 million for Q4 2025, compared to $4.2 million in the previous quarter and $4.7 million in Q4 2024, leading to an annualized run rate of approximately $25 million [5][23] - Gross margins for Q4 2025 were 13%, up from 10% in Q3 2025 but down from 22% in Q4 2024, with annual gross margins at 18% compared to 30% in the prior year [25][28] - The company expects fiscal 2026 revenue to reach approximately $25 million, a 30% increase from $19 million in 2025, with gross margins projected to improve to around 30% [21][25] Business Line Data and Key Metrics Changes - Production revenue for Q4 2025 was $5.1 million, up from $3.3 million in the prior quarter and $2.8 million in the year-ago quarter, while engineering revenue was $1.1 million, down from $1.9 million year-over-year [23] - The systems manufacturing business is expected to grow at least 75% in fiscal 2026, driven by the expansion of two major production programs [14][21] - Revenue from the micro-optics lab is projected to decline from $2.1 million in fiscal 2025 to $1.3 million in fiscal 2026 due to timing of a large defense customer reorder [24] Market Data and Key Metrics Changes - The company has seen a significant increase in production demand from its aerospace and surgical robotics customers, with a backlog for the aerospace program reaching nearly $9 million [10][24] - The transition of the single-use cystoscope program to production has faced challenges but is expected to improve profitability through design updates and pricing renegotiations [12][13] Company Strategy and Development Direction - The company is focusing on expanding its production capabilities and has invested in new facilities to support growth, including a move to a new headquarters in Littleton, Massachusetts [7][8] - The management emphasizes the importance of advancing multiple products from the development pipeline into production, with expectations of two to three programs transitioning to production each year [14][15] - The company aims for long-term gross margins of 40% and is working on improving operational efficiencies and production yields [21][26] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, citing high growth expectations for the production business and confidence in the visibility of ongoing programs [30] - The company acknowledges challenges faced in gross margins during fiscal 2025 but expects substantial recovery in fiscal 2026 as production scales up [15][21] - Management highlighted the importance of addressing operational challenges and building internal capacity to support long-term business results [30][19] Other Important Information - The company has recently hired key personnel, including a new Chief Operating Officer, to enhance operational performance [20][19] - Adjusted EBITDA for fiscal 2025 was negative $3.7 million, compared to negative $1.6 million in fiscal 2024, with cash at approximately $1.8 million and debt below $1.9 million [28][29] Q&A Session Summary Question: Guidance on revenue for 2026 - Management acknowledged being conservative in their guidance, noting a decline in revenue from the micro-optics lab and the impact of tooling and fixturing revenue on gross margins [35][36] Question: Medical program pricing and reimbursement - Management confirmed that the client agreed to cover higher costs due to initial production difficulties, with a negotiated step-down in pricing expected as issues are resolved [40][41] Question: Tariff reimbursements - Management stated that verbal agreements for tariff reimbursements are in place, with documentation pending [42][43] Question: Engineering resources and project pipeline - Management indicated that engineering resources will be progressively filled throughout 2026, with several programs already lined up for development [49][50] Question: Challenges with the second single-use program - Management reported that the second single-use program is progressing well, learning from the challenges faced with the cystoscope program [62][64] Question: Future gross margin expectations - Management confirmed that gross margins are expected to improve significantly in the latter half of fiscal 2026, driven by operational improvements [66]